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Thursday, June 23, 2011

It is unfortunate that Steven Greenhouse perpetuates the myth that employees are not responsible for paying 100% of their pension contributions (States want more in pension contributions, New York Times, June 16, 2011:B1, B8).

A pension is merely cash compensation that has been deferred. Instead of an employee taking all the compensation in cash and then saving some proportion and managing those savings, it is cheaper and more effective for the employer to make those savings and manage the assets -- financial services are cheaper wholesale than retail.

The proportion set aside for pensions is negotiated through collective bargaining -- but all of it comes from the employees' pockets. here is a negotiated trade-off between cash pay and benefits. The proportion of the pension contribution that is formally deducted from the paycheck versus the proportion that the employer holds back (and supposedly sets aside) is merely a book-keeping convention.

The reason that citizens are balking at the compensation enjoyed by public sector employees is that their wages have been stagnant over the past 25 years (except for the top 1 percent of wage earners); while corporations have failed to compensate employees in line with productivity increases, they have also fed them a story about the excesses of the public sector.

These attacks on public sector workers are appealing to the rest of us who have lost our good pensions and health benefits, but they miss the target of restoring fiscal balance.

Lower levels of government need additional support from the Federal government. This should be paid for by a new tax on financial transactions. That is where the money is, that is where a tiny tax on each transaction would result in a flow of funds to the treasury without crimping normal economic activity on main street.